After years of soaring Bay Area rents, the economic slowdown and remote work mandates could bring deep cuts to higher-end apartment prices for years to come.
Rents may fall in the Bay Area for at least one or two more years, according to analysts from the real estate data firm Yardi Matrix. A return to pre-pandemic prices in multi-family buildings — typically newer high rises or sprawling suburban apartment communities — could be five years or more away, analysts say.
The South Bay market, including San Jose, is expected to decline for another year, while Oakland and San Francisco rents could fall for two more years.
Already, San Jose property managers are offering the most rent discounts in the U.S. to attract tenants. Doug Ressler of Yardi Matrix said the widespread San Jose discounts, typically weeks or months of free rent, show soft demand for the high-end market.
Bay Area rents have plummeted throughout the coronavirus pandemic, dropping as much as 30 percent in cities with a high concentration of tech companies, according to listing and property management site Zumper. The spread of remote work for tech workers has driven many younger employees to cheaper, bigger apartments, sometimes outside California or back home.
Since January 2020, the median two-bedroom rent in San Jose has fallen 10 percent to $2,660, dropped 17 percent in Oakland to $2,530, and cratered 23 percent in San Francisco to $3,500, according to Zumper.
Rents for two-bedroom apartments in Peninsula cities have also seen dramatic declines: Santa Clara and Cupertino both dropped 12 percent to $2,730, Mountain View fell 28 percent to $3,050, and Menlo Park sank 26 percent to $3,000.
Apartments in the more affordable East Bay cities of Livermore, Concord and Dublin have seen mostly stable rents throughout from last year, according to Zumper.
Rents in several cities stabilized from December to January after a steady, pandemic-induced decline. But housing experts say the flat rents might be a blip caused by the typically high demand for moving in early January.
“The headline is, ‘Watch this space,’” said Zumper CEO Anth Georgiades. “It’s too early to make a call.”
The coronavirus vaccine and expected return to more normal office schedules should give a clearer picture by August, Georgiades said. Still, when it comes to how remote work rules will affect housing in the future, he said, “there’s a lot of head-scratching.”
Managers of multi-family buildings are offering weeks or months of free rent to attract tenants as demand drops. Zumper is seeing listings with between two weeks and three months of rent concessions.
In San Jose, roughly 4 in 10 high-end apartments offered free rents in December, by far the highest percentage in the country, with an average discount of $3,500, according to Yardi Matrix. About 1 in 5 San Francisco high-rises advertised discounts, with an average savings of $3,600.
Yardi Matrix analysts found other big concessions in New York City and throughout cities in Texas, including Austin, San Antonio, Dallas and Houston. Analysts noted the discounts were most prevalent during the summer.
Ressler said rents could rebound some in the East Bay as tenants seek to trade up to more space or amenities.
Bay Area and Sacramento apartment prices, among the highest in the nation, have dropped nearly 9 percent from last January, according to Yardi Matrix. Nationally, rents have dropped less than 1 percent during the same period.
But Bay Area prices for older units with fewer amenities have not declined substantially during the pandemic. Tenant advocates say service workers and other blue-collar employees continue to struggle to pay their bills. Many low-income residents spend more than half their pre-pandemic income on housing and are unable to keep up with lost wages. The state estimates California tenants owe at least $400 million in back rent.